The World on two pages – March 2015

Global growth remains around 3%. Weaker prices for oil and other commodities will benefit spending power in most big advanced economies as well as in China. The domestic economy, in early 2015, has not gained momentum with another rate cut expected in the coming months.

Global: Global growth remains around 3% and, although the business surveys show a lift in sentiment in key advanced economies, there is still no clear evidence that the expected upturn in global growth to 3½% by the end of the year has commenced. Weaker prices for oil and other commodities will benefit spending power in most big advanced economies as well as in China, but that same weakness is weighing on demand across a range of primary exporting nations. World trade remains sluggish, holding down growth in export-oriented areas like East Asia but the lower Euro should help towards its predicted recovery in growth.

Australia: We have not changed our near term forecasts – 2014/15 at 2.3% – and have marginally lowered 2015/16 forecasts to 3% (was 3.2%). That largely reflects weaker business investment and a touch higher unemployment rate (6.7%) at end 2015 and hence a touch weaker consumption. On going weak global trade has lowered our expectations of much better non commodity exports. The domestic economy, in early 2015, has not gained momentum. Inflation will continue to slow. We still see another rate cut in coming months – most likely May but the April meeting is live and data dependent. We are not forecasting a second cut to below 2% but the chances of that happening are rising (35-40% chance).